I need to answer these but I am having a ton of difficulties with the first 10 questions that are calculation oriented.

Assignment I FINA 395 The assignment is due in the class on November 11. Please show your work for the first ten problems. Where there is theory, explain. 1. The 1-year spot rate is 5%, the 1-year forward rate starting after one year is 5.4%, and the 1-year forward rate starting after two years is 6.2%. What is the 3-year spot rate? The given rates are effective annual rates. a. 5.511% b. 5.532% c. 5.587% d. 5.618% e. 5.632% 2. The current 1-yr spot rate is 4%. Investors expect the 1-yr spot rate after one year and two years also to 4%. Short-term investors require a liquidity premium of 2%. What are the 2-year and 3year spot rates? a. 6%, 6% b. 4%, 6% c. 5%, 5.33% d. 6%, 5.48% e. 7%, 5.48% 3. The 1-year to 7-year spot rates are 4.2%, 4.4%, 4.7%, 5.1%, 5.6% , 6.3%, and 6.6%, respectively. Compute the forward rate yield curve at the end of three years. What are the forward rates for 1-year to 4-year maturities, that is annual rates. ? The given rates are effective a. 6.102%, 6.558%, 7.670%, and 7.881% b. 6.109%, 6.665%, 7.780%, and 7.948% c. 6.208%, 6.774%, 7.796%, and 7,980% 1 d. 6.253%, 6.838%, 7,859%, and 8.005% e. 6.309%, 6.965%, 7.924%, and 8.048% 4. The idea of forward discount factors is useful in determining the forward prices of financial assets. gives the value of $1 at time to be paid at time in terms of simple discount factors as . can be expressed . Suppose the 1-year to 5-year discount factors are 0.96079, 0.90484, 0.83527, 0.75578, and 0.67032. What is the 2-year forward price of a 6% annual coupon bond maturing after 5 years? The face value of the bond is $1,000. A. $890.77 B. $894.38 C. $897.59 D. $901.22 E. None of the above 5. For the above bond, what is the 3-year forward price? A. $896.73 B. $899.12 C. $900.48 D. $904.96 E. None of the above 6. Which of the following statements are true? i. 7% compounded half-yearly is equivalent to 6.9398% compounded quarterly. ii. 9% compounded quarterly is equivalent to 9.1012% compounded half-yearly. iii. 10% effective annual rate is equivalent to 9.5690% compounded monthly. A. i and ii B. i and iii 2 C. ii and iii D. All of the above E. None of the above 7. Which of the following statements are true? i. 8% compounded continuously is equivalent to 8.0805% compounded quarterly. ii. 9% compounded monthly is equivalent to 8.8619% compounded continuously. A. i only B. ii only C. Both of the above D. None of the above 8. The 1-year to 5-year spot rates are 3%, 3.5%, 4%, 4.5%, and 5%, respectively. Consider a 5-year, 6% annual coupon paying bond? The face value of the bond is $1,000. Which of the following statements are true? i. The price of the bond is $1,048.45 ii. The yield to maturity is 4.88% a. i only b. ii only c. Both i and ii d. None of the above 9. \"If the spot rate curve is increasing, the lower the coupon rate of a bond, the higher is its yield to maturity for any given time to maturity.\" Is this statement true? a. True b. False 10. \"Bond A and Bond B have the same maturity and belong to the same risk class, but Bond A has a higher YTM than Bond B. Then Bond A is a better investment than Bond B and will be preferred by all investors.\" Is this statement true? a. True 3 b. False 11. An investor in an n-year coupon paying bond reinvests coupons until end of year n at forward rates prevailing today. What is the realized rate of return? a. n-year yield to maturity b. n-year par yield c. n-year forward rate d. n-year zero coupon rate e. None of the above 12. Consider two bonds having the same credit rating: a 7-year 5% semi-annual coupon paying bond and another 7-year but 8% semi-annual coupon paying bond. Coupon from both bonds are rein vested at the forward rates until the maturity of the bonds. Then, which of the two bonds has a higher realized return? a. The 5% coupon bond b. The 8% coupon bond c. Both have the same realized return d. The given information is insufficient to answer the question 13. Assume that the spot rates from year 1 to year 5 are as follows: 4.8%, 5.1%, 5.4%, 5.6%, and 5.8%, respectively. An investor buys a 5-year, 6% annual coupon paying bond. Assume that the investor reinvests the coupons at the prevailing spot rates (and not the forward rates as in the above questions) at the time of coupon payments. Also assume that the spot rate curve does not shift during the next five years. What is the realized rate of return? (You can assume any face value of the bond as it does not matter) a. 5.40% b. 5.6325% c. 5.6744% d. 5.708% e. 5.760% 4 14. If the yield curve is upward sloping, the liquidity premium hypothesis implies that the investors expect interest rates to rise in the future. a. True b. False 15. If the yield curve is downward sloping, the liquidity premium hypothesis implies that the in vestors expect interest rates to fall in the future. a. True b. False 16. Beta Inc. has been invited to make a bid on a government contract for a certain number of scientific instruments. The company estimates that it will cost $5,000 to prepare a bid and $95,000 to deliver the scientific instruments if it wins the contract. The company believes that there is a 30% chance that there will be no competing bids. However, when there are competing bids, it believes that the low bids (the lowest bidder wins the contract) will be as follows: Low Bid Probability Less than $115,000 0.20 Between $115,000 and $120,000 0.40 Between $120,000 and $125,000 0.30 Greater than $125,000 0.10 The company is contemplating whether to bid or not. If it is going to bid, it will bid either $115000, $120000, or $125000. What is the best course of action for Beta Inc.? A. Don't bid B. Bid $115,000 C. Bid $120,000 D. Bid $125,000 17. What is the expected monetary value (EMV) of the best decision? A. $11,800 B. $11,900 5 C. $12,000 D. $12,100 E. $12,200 18. First do problems 9.12 to 9.14 in your textbook before you answer the next three questions. The ini tial investment of a new project whose life is 10 years is $2.5 million and is expected to sell 10,000 units at $60 net cash in the first year. After the first year, the expected sales will be revised to 12,000 units per year for the remaining life of the project if it is a success in the first year; if it is a failure in the first year, the expected sales are revised to 5,000 units per year for the remaining life of the project. Success and failure in the first year are equally likely. There is an option to abandon the project after the first year for an abandonment value of $1.75 million. The discount rate for this project is 18%. What is the NPV of the project with the abandonment option? A. $62,786 B. $87,932 C. $100,349 D. $106,012 E. $110,533 19. In the above problem, what is the value of the abandonment option? A. $153,229 B. $164,812 C. $171,439 D. $184,712 E. $194,531 20. In the above problem, if the scale of the project can be doubled , i.e., produce and sell 12,000 X 2 = 24,000 units, after 1 year if success is observed, what is the value of the option to expand? We as sume that no further investment in plant and machinery is required to double the output beyond what is invested now. A. $999,498 B. $1,000,412 C. $1,138,763 6 D. $1,200,559 E. $1,312,786 21. \"Many research articles support that financial markets are semistrong efficient.\" Is this statement true or false? A. True B. False 7